NEW YORK (TheStreet) -- The Federal Reserve is at last getting close to moving the official target for the federal funds rate away from zero for the first time since December 2008. Whether the first hike is in September, December or later is of relatively minor consequence. The Fed is about to take us out of familiar territory and into largely unexplored waters.
This is as close as we've been to a rate hike since the onset of the financial crisis. Over six and a half years of zero-interest rate policy. The last rate increase was nine years ago, and the last "first" rate hike of a tightening campaign was in June 2004, more than 11 years ago. There is an entire generation of investment managers that has not yet been through the tightening portion of a monetary policy cycle.
There are many legitimate reasons why interest rates were kept low for such a long time. It's now widely understood that the recent recovery from the balance sheet-driven recession was very different from the recovery from a more normal inventory-driven recession. But prolonged easy policy has mean there has been a prolonged period of low financing rates, which we know led to business and investing decisions that would not have been made with higher rates in place.
In past tightening cycles, any weak decisions -- in real business and in capital markets -- have been exposed as rates go up. Although Fed policymakers have signaled they are likely to increase rates slowly, the lengthy periods of zero rate policy combined with the unusual economic recovery and manager inexperience should result in volatile markets.